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Medium Merger & Acquisition Market Sizing Pricing Profitability

Chicken Pox Vaccine

#Pharmaceutical/Healthcare
ProHub Comment

This is a quantitatively heavy investment decision case requiring the candidate to build a market sizing model, apply pricing insights from demand curves, and calculate profitability metrics. The key analytical insight is recognizing that post-saturation, revenues drop to replacement demand (new births), creating a finite high-value market window. The case tests whether candidates can identify the addressable market using the infection rate distribution curve and translate that into a breakeven and NPV analysis.

Estimated Time 26 minutes
Difficulty Medium
Source Chicago Booth
10 / 100

Your client is a large pharmaceutical drug company working on a vaccine for chicken pox. The vaccine needs to pass three phases of testing to be approved by the FDA. It has just completed the second phase, and the client is asking for your help to decide if they should fund the third phase. The third phase would last 2 years and cost $300M. Results from previous phases indicate the vaccine has a 95% chance of approval. We would be able to start producing vaccine immediately following approval.

Should our client invest or not?

Clarifying Information

  1. Vaccine is a one time injection.
  2. Assume US population is 300M, and it is uniformly distributed from 0-75 (as many people enter population as leave every year).
  3. It is estimated that it would take 3 years to vaccinate existing population, and would be done at an even pace.
  4. Costs (per injection): Distribution $1.50, Production $2.50, SG&A $5.00
  5. Assume the $300M costs for phase three includes everything else (plant set up costs, etc.) and can be expensed evenly over the 2 years of testing.
  6. Vaccine will not be patented.
  7. Other companies would have to undergo same series of testing and no other companies have started formal testing of vaccine.
  8. Phase 1 and 2 combined take 3 years (we have 3 years of competitive protection); Phase 1 and 2 cost $200M.
Mock Interview
Interviewer

Your client is a large pharmaceutical drug company working on a vaccine for chicken pox. The vaccine needs to pass three phases of testing to be approved by the FDA. It has just completed the second phase, and the client is asking for your help to decide if they should fund the third phase. The third phase would last 2 years and cost $300M. Results from previous phases indicate the vaccine has a 95% chance of approval. We would be able to start producing vaccine immediately following approval. Should our client invest or not?

You

Thanks. Before analyzing, I'd like to clarify a few key questions...

Interviewer

Good question. Let me provide some background information...

You

Based on this, I suggest analyzing from these dimensions...

AI Score
Structure Analysis Communication Business Sense Quantitative
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Practice this case with AI Mock Interview

A pharmaceutical company must decide whether to invest $300M to fund Phase 3 testing of a chicken pox vaccine. The recommendation is YES—the vaccine breaks even in 1.25 years and generates $756M in profit over 3 years, with strong margins ($21 per $30 injection) to a target population of children aged 0-9 with willing parents.

Key Insights:

  1. Addressable market is determined by infection rate: only ages 0-9 qualify (under 50% infection rate), yielding 36M of 72M people aged 0-18
  2. Pricing at $30 maximizes profit by balancing unit volume (75% willingness to pay) against elasticity cliff above that price point
  3. Revenue structure has two phases: initial high-volume ramp (9M/year for 3 years) then steady-state annuity (3M/year from new births)
  4. Competitive protection from FDA testing timeline (3 years) prevents new entrants from capturing the high-margin existing population segment
  5. Total cost per injection ($9) yields a 70% gross margin ($21), enabling rapid payback despite $300M upfront investment